All you need to know about robo-advisor players in Singapore
But since Singaporeans are among the world’s wealthiest people with 10.7% of the country’s households in the millionaire category, this topic is one that will continue being in the limelight as it rapidly develops.
Historically, Singapore's wealth management needs have been dominated by the city-state’s leading banks for decades.
In fact, of late, these banks continue to strengthen their already dominant positions. In April, OCBC Bank bought Barclay Bank’s wealth and investment management business in Singapore and Hong Kong for S$430mil. This acquisition added US$18.3bil to the assets under management (AUM) of Bank of Singapore, which is OCBC’s private banking unit.
In 2014, Société Générale sold its Asian private banking business to Singapore’s DBS for about US$220mil.
As wealth management is a business that is highly dynamic and demand continues to grow, high-net-worth individuals (HNWIs) are increasingly looking to lower the costs they pay for services.
Enter the Robo-Advisor
In several markets around the world, robo-advisors are making inroads into territory that was traditionally the domain of well-established wealth managers. These new companies, which utilise sophisticated algorithms instead of human advisers to decide on asset allocation, have very affordable fees.
According to the Boston Consulting Group, an HNWI client belonging to the “mass affluent group” that is defined as an individual with investible funds of between US$100,000 and US$1mil, could expect to be charged a fee of about 1.22% of the amount being invested.
A customer in the US$1mil to US$20mil bracket would pay about 0.8%, while investments over US$20mil would set clients back by 0.39%.
The comparable rates for robo-advisors? A flat 0.25% or less even if the funds invested are minuscule by traditional standards.
Growth in the US market
Last year, firms offering robo-advisory services captured 0.5% of the US market. It is estimated that by 2020, they will have a share of 5.6%.
The largest wealth management firm in America, Betterment, was founded barely six years ago. It already has US$5bil in AUM. But most of this money was not managed by traditional wealth managers. Instead, these funds had been under the personal supervision of the investors themselves.
Betterment’s negligible charges and the fact that it does not stipulate a minimum amount to be invested has attracted large numbers of Americans. The average amount that the firm receives from an investor is below US$30,000.
The fees that Betterment charges are also a great attraction. They range from 0.15% to a maximum of 0.35%.
Robo-advisors in Singapore
Established in 2013, Mesitis already has 90 HNWI clients with a total AUM of S$3.6bil. The minimum amount that can be invested through the company is S$1mil.
CEO and founder Tanmai Sharma points out that Singapore alone has about 100,000 potential customers. The Asia-Pacific region, excluding Japan and China, has 1.2mil individuals who can become the company’s customers.
The company is confident that its robo-advisory services, which automatically allocate a client’s assets based on individual risk preferences, will rapidly gain traction in Singapore. An added attraction is the low fee of just 30 basis points on the value of investments.
Launched in Singapore in April this year, Bambu specialises in building robo-advisors for the financial sector.
It offers its clients three products. One is for savings, another for investments and a third for private banking.
The company has tied up with several big names as part of its effort to offer its clients a high-end product. Thomson Reuters provides the data; Tigerspike handles the design, front-end development and integration; and Finantix furnishes digital platforms for wealth and banking applications.
It has also entered into an arrangement with Eigencat, a Singapore-based digital investment management company, to handle portfolio construction.
CEO and founder Ned Phillips says: “I am looking forward to working together with these market leading companies … to offer a scalable and reliable robo-advisory solution for all companies who see robo as an essential part of their growth.”
This Singapore company is planning to launch its robo-advisory services soon.
The firm will provide individual investors with an opportunity to put their money into a customised globally diversified investment portfolio of exchange-traded funds. The minimum investment is just $50.
Smartly charges 1% of the amount invested if your portfolio is less than S$10,000. For investments of S$10,000 to S$100,000, the charge is 0.7%, which falls to 0.5% for amounts exceeding S$100,000.
Firms offering robo-advisory services will appeal to the mass market
With their affordable fees and low minimum investment requirements, robo-advisory firms are sure to catch on with Singaporeans. Large numbers of investors who would not have thought of approaching traditional wealth management firms will find the services that these new companies offer to be attractive.
Robo-advisors have made rapid inroads into the wealth management market in the West. It is highly likely that they will enjoy a similar level of success in tech-savvy Singapore. Even investors who use traditional wealth management companies will be increasingly drawn to the lower rates and automated services that these new firms offer.